Public Bill Committee

[Mr Jim Hood in the Chair]

Clause 29  - Modifications of transmission and other licences: business separation

Amendment proposed (this day): 76, in clause29,page15, line36,leave out from ‘if’ to end of line 37 and insert
‘the body acting by virtue of section 4(2) is a holder of a licence to distribute electricity by virtue of section 6(1)(a) to (e) of the Electricity Act 1989.’.—(Tom Greatrex.)

Question again proposed, That the amendment be made.

Jimmy Hood: I remind the Committee that with this we are discussing amendment 77, in clause30,page17,line20, at end insert—
‘(e) the Secretary of State must report annually to Parliament on the performance of the national system operator.’.

John Hayes: May I say what a delight it is to serve under your chairmanship, Mr Hood? It is all the more joyful for being a surprise.
I was responding to a number of contributions on the potential conflict of interest relating to the role of the systems operator and National Grid. To that end I will pick up where I left off by drawing the Committee’s attention to the fact that our consultation on that matter closes today. The consultation reflects the Government’s recognition that these matters are to be taken seriously. But the queries that have been made by members of the Committee today, building on the discussions that have taken place since the publication of the draft Bill, are both understandable and welcome. Through scrutiny the Bill can be put into the place it needs to be, particularly this part which establishes this critical relationship and gives effect to the changes we are bringing about in respect of the electricity marketplace.
To that end we are consulting. The work we are doing with Ofgem takes account of both the synergies associated with National Grid and the new duties that it will have, but also the issues that need to be addressed in respect of conflicts of interest. We will report on the outcome of that consultation in spring and if necessary the Government can use their powers in clause 29, as the shadow Minister described, to put into place further business separation measures within National Grid’s business. I do not want to go back to the genesis of business separation in 1929, or at least not at this juncture. Suffice it to say, the Government are open to taking further steps should that become necessary. I mentioned earlier, Mr Hood, and I mention it again only to bring you up to speed with our discussion, that Ofgem has a range of existing powers to tackle conflicts of interest as well.
I am confident on that basis that we can, with sureness, building on existing good practice, recognising that this is a dynamic set of circumstances, understanding that we will need to be mindful of the results of the consultation, move ahead with appropriate confidence in our scrutiny of the Bill. I listened closely to what was said this morning. Ultimately, of course, we have powers under clause 30 to enable the Government to transfer EMR functions away from the systems operator altogether. That would be in unforeseen and unexpected circumstances, but none the less the powers are there. I hope that with those explanations and reassurances, the hon. Gentleman will withdraw the amendment.

Tom Greatrex: It is a pleasure to serve under your chairmanship, Mr Hood. It means that all parts of Hamilton are represented on this Committee. You will have no trouble with my native Lanarkshire accent during the rest of our discussions. I am grateful for the Minister’s response, particularly in relation to amendment 77. I take on board his acceptance of the broad thrust of seeking to ensure that Parliament is fully informed and the operation of the system operator is made available to those with an interest and to the public. I look forward to seeing the product of that reflection later in the Bill, so I will be content not to press amendment 77.
In relation to amendment 76, I listened carefully to what the Minister said, both before we broke and in concluding his remarks just now. He again referred to the consultation, which closes this week, and I accept that it is not reasonable to expect him to anticipate the conclusion. However, I am slightly concerned that he again referred to it being published in spring. Given that we have referred before to how Whitehall springs can end up being quite late in the year, I am not absolutely convinced that we are going to get what we need. I understand what the Minister says about clause 30 and the powers, but that is about after something has gone wrong. This amendment is about ensuring that there is real clarity about the separation within National Grid before anything even starts. So it is not about seeking to use powers to react to a situation, but anticipating and preventing a situation. As I have said before, I do not believe that anybody involved in National Grid as a body would have any malign intent, but there is always the danger that somebody might take it upon themselves if there are not the right protections in place.
That is why this amendment is important. There are other issues that we will come on to discuss and which we have discussed where there is a degree of philosophical and political difference between us. This amendment is actually about helping the Government and ensuring that, as this system is established, there is no room for any ambiguity. It is as important about transparency and confidence before anything begins as much as being able to rectify a situation. Having said that, it would be unfair to push this prior to the consultation closing, but I want to put on record that if the Minister has not been able to provide further reassurances by Report stage, we may well come back to this issue at that point. With that I beg leave to withdraw amendment 76.

Amendment, by leave, withdrawn.

Amendment made: 1, in clause29,page16,line36,leave out
‘or Chapter 3 (capacity market)’
and insert
‘, Chapter 3 (capacity market) or Chapter 5 (investment contracts)’.— (Mr Hayes.)

Clause 29, as amended, ordered to stand part of the Bill.

Clause 30  - Power to transfer EMR functions

Amendment made: 2, in clause30,page18,line6,leave out ‘or Chapter 3 (capacity market)’ and insert ‘, Chapter 3 (capacity market) or Chapter 5 (investment contracts)’.—(Mr Hayes.)

Clause 30, as amended, ordered to stand part of the Bill.

Clause 31ordered to stand part of the Bill.

Schedule 2 agreed to.

Clause 32  - Energy administration orders

Amendment made: 3, in clause32,page19,line23,leave out ‘or 3’ and insert ‘, 3 or 5’.—(Mr Hayes.)

Clause 32, as amended, ordered to stand part of the Bill.

Clause 33 ordered to stand part of the Bill.

Schedule 3  - Investment contracts

Tom Greatrex: I beg to move amendment 78,in schedule 3, page99,line40, at end insert—
‘(3A) Provision by virtue of subsection (1)(c) must include provision about a panel of independent experts to advise on the amounts to be paid;
(a) a panel of independent experts must include a consumer representative;
(b) advice provided by a panel of independent experts must be laid before Parliament.’.

Jimmy Hood: With this it will be convenient to discuss the following:
Amendment 79, in schedule 3,page100,line4, at end insert—
(c) within three days of the contract being entered into.’.
Amendment 80, in schedule 3, page100,line27, leave out
‘in the opinion of the Secretary of State, materially’
and insert
‘in the opinion of the independent panel of experts,’.
Amendment 81, in schedule 3,page100,line44, leave out sub-paragraph (4).
Amendment 75, in schedule 3,page101,line14, leave out sub-paragraphs (c) and (d) and insert—
‘(c) not information which relates to liabilities or risks that would be placed on energy consumers or on the public balance sheet.’.
Amendment 82, in schedule 3,page103,line15, leave out ‘may’ and insert ‘must’.
Amendment 83, in schedule 3, page103,line27, at end insert—
(e) an annual report by the Secretary of State laid before Parliament on the impact of provisions under this section on consumer bills;
(b) the issuing of notices exempting energy intensive industries from the provisions under this section.’.
Amendment 84, in schedule 3, page104,line18, leave out sub-paragraph (4).
Amendment 85, in schedule 3, page104,line48, at end insert—
(h) for the information provided by virtue of sub-paragraphs (a) to (c) to be laid before Parliament.’.
Amendment 86, in schedule 3, page105,line12, at end insert—
‘( ) Any advice offered or determinations made by virtue of this paragraph must be laid before Parliament within one month of the offering of advice or making of a determination.’.
Amendment 87, in schedule 3,page105,line32, at end insert—
(e) any person who is a holder of a licence to supply electricity under section 6(1)(d) of EA 1989,
(b) any person who is a holder of a licence under Article 10(1)(b) or (c) of the Electricity (Northern Ireland) Order 1992 (S.I. 1992/231 (N.I.1)) (transmission or supply licence),
(c) the Committee on Climate Change,
(d) the Panel of independent experts.’.
Amendment 88, in schedule 3,page106,line9, after ‘may’, insert ‘only’.
Amendment 89, in schedule 3, page106,line9, leave out
‘as well as consultation after,’.
Amendment 90, in schedule 3, page106,line38, at end insert—
‘(4) Provision by virtue of sub-paragraph (1) must be laid before Parliament within three working days of any direction.’.
Amendment 91, in schedule 3, page106,line38, at end insert—
‘( ) Provision by virtue of sub-paragraph (3)(b) should be accompanied by a statement to Parliament outlining the reasons for any variation or termination of an investment contract.’.
Amendment 92, in schedule 3, page107,line7, at end insert—
‘( ) The Secretary of State must make a statement to Parliament setting out the compatibility of sub-paragraph (1) with paragraph 14.’.
Amendment 93, in schedule 3, page108,line29 at end insert—
‘( ) Provision made by virtue of this paragraph must be laid before Parliament before the agreement of any compensation.
( ) The Secretary of State must set out the reasons why he/she believes the person subject to a scheme by virtue of this paragraph has been adversely affected.
( ) Provision made by virtue of this paragraph must identify the source of compensation paid by the Secretary of State.’.
Amendment 94, in schedule 3,page109,line33, at end insert—
‘(5) The Secretary of State must report annually to Parliament on expenditure incurred by virtue of subsection setting out—
(a) the reason for the expenditure;
(b) a statement by the Secretary of State on the value for money of this expenditure.’.

Tom Greatrex: A number of these amendments replicate earlier amendments to part 2 of the Bill on contractor difference, so although I am moving the group of amendments, I will restrict my remarks to those that are slightly different— amendments 79, 80 and 81. I am sure others will then seek to contribute, particularly in relation to amendment 75, although I may say a few words on that as well.
Amendment 79 is designed to ensure that investment contracts agreed between the Secretary of State and a generator are laid before Parliament within three days of the contracted being entered into. Paragraph 1(1) of schedule 3 sets out that the investment contract must be laid before Parliament in accordance with sub-paragraph (4), which goes on to note:
“A contract is laid before Parliament in accordance with this sub-paragraph if it is laid by the Secretary of State at any time after the introduction into Parliament of the Bill that becomes this Act”.
Sub-paragraph (7) sets out when the investment contract must be published, stating:
“The Secretary of State must publish an investment contract in the form in which it was laid before Parliament as soon as reasonably practicable after it is laid.”
My concern about this provision is the lack of a specific time scale, other than when the Secretary of State determines is reasonably practicable. Both reasonability and practicability are not always objective judgments, so it is important that we set out when the investment contracts should be laid before Parliament. The drafting of the Bill in this respect is broad, and it is so broad that the Secretary of State—or a future Secretary of State—could conceivably not publish the contract for months or even years, on the grounds that it is not in his or her judgement reasonably practicable.
To be clear, we are talking here about the investment contract as a whole, not just the publication of the strike price, which we have discussed before, agreed between the Government and the generator. Although the strike price is a key element of the contract, and we have talked previously about the importance of that, there is a lot more detail involved that should be scrutinised by Members of this House and be available to the public. Publishing the investment contract within three days of it being entered into, either by the Secretary of State or the investment contract counterparty, will help to provide transparency over what has been agreed, and allow the Government to be held to account for that agreement.
I should be grateful if the Minister addressed this point directly in his remarks in relation to this amendment, and if he could provide further information of what commitment he is willing to make in terms of publishing an investment contract. I am sure that will be of assistance to members of the Committee. We are regularly—almost daily—reading speculation about a potential investment contract and deal that may well be concluded soon between the Government and EDF. I would not expect the Minister to go into any detail on that while negotiations are under way, but the issue is not just the strike price; some aspects of how the contract will be delivered are as significant, and could have a big impact on whether the contract meets the test of broad public acceptability. It is important to meet that test, particularly in relation to significant developments that will attract significant funding, some of which, as we have discussed before, will come through a mechanism that is underwritten by the public.
Like other amendments we have tabled to the schedule, amendments 80 and 81 would increase transparency and public confidence in the investment contract process. Paragraph 2 of schedule 3 gives the Secretary of State the power to change an investment contract after it has been agreed and has entered into force. Paragraph 2(l)(b) states that an investment contract is a varied investment contract, and therefore must be laid before Parliament, if the variation
“will, in the opinion of the Secretary of State, materially increase the likely cost to consumers of electricity.”
That provision gives significant scope for the Secretary of State to determine what course of action is taken. Under it, if the Secretary of State does not believe a variation will materially increase the burden on consumers, that variation need not be published. However, the Bill does not define “materially”. Does that mean an extra £1 on consumer bills? Does it mean an extra £10 a year? What is a material increase? Paragraph 2 needs to be tightened up, because what counts as a material increase for the Secretary of State may be quite different to what counts as such for many of our constituents, or for people involved in other parts of the energy industry.
Our amendment would take that power out of the hands of the Secretary of State and hand it to the panel of independent experts to determine not whether the variation would materially increase the burden of consumers, but simply whether there would be any increase. Consumers deserve to know exactly what they will be paying for; if that means an extra amount each year because of changes made by the Secretary of State and the generator, consumers should know that. The reason there is so little trust in the energy industry and so much misinformation about the cost of certain generating types is the lack of clarity about what people are paying for. Our amendment would rectify that to a certain extent.

Barry Gardiner: My hon. Friend is speaking about a lack of clarity; can he clarify for me the interpretation of paragraph 1(1)(a) of the schedule as it relates to section 6(3)? Sub-paragraph (1)(a) states:
“In this Schedule an ‘investment contract’ means a contract with an electricity generator which…is entered into by the Secretary of State, whether before or after this Schedule comes into force”—

Jimmy Hood: Order. The hon. Gentleman is taking too long with his intervention.

Tom Greatrex: I think I can anticipate the direction in which my hon. Friend was going. It is important because the schedule governs the investment contracts, and a significant amount of investment is going into those contracts. We must be absolutely clear about how transparently the contracts work. I was coming on to discuss that.
We need to have absolute clarity. A number of provisions in the schedule appear to be very broadly defined, which undermines transparency and clarity. My point is not a partisan one; we want that transparency and clarity to ensure that the investment that is required in our energy infrastructure takes place, and does so in the most appropriate way.

Albert Owen: My hon. Friend is quite right to point out the importance of transparency. In his earlier remarks, he also mentioned the burden on the consumer; the consumer has the right to know, as much as Parliament does, why bills are going up and the consequences of that.

Tom Greatrex: My hon. Friend is absolutely right. Tabling amendments that seek to ensure that information is published to Parliament is a way of trying to get that information into the wider public domain. He is absolutely right to raise the impact on the public; our role here in scrutinising the Bill, and afterwards in scrutinising its effects, is to bring issues to public attention. With an issue such at this, which has caused huge concern among the public, it is absolutely right to make that point.
Amendment 81 would prevent variations that are provided for within the terms of the original contract from escaping parliamentary scrutiny. Paragraph 2(4) of schedule 3 states:
“This paragraph does not apply in respect of a variation which is made in accordance with the terms of an investment contract.”
As I have said before and others will come on to say, the terms of an investment contract are absolutely crucial. The ability to evade the requirement to provide information, because it is made in accordance with the terms of the investment contract, underlines even more the case for amendment 79 and for publishing the investment contract as soon as possible and with as much accompanying information as possible.

Michael Weir: The hon. Gentleman makes a good case. It worries me that the explanatory notes state that were the strike price to be increased, that need not be made public. That is a fundamental difficulty.

Tom Greatrex: The hon. Gentleman and I have different views about nuclear power, but we probably share our position on the importance of transparency. Potential changes to the strike price are crucial. If we are going to have, as has already started, ongoing public speculation about current discussions on trying to agree a strike price, it would be remiss were a figure to be agreed and subsequently changed without any information being made more widely available to Parliament or the public or if the terms of a contract allow that to happen. I therefore agree with the hon. Gentleman.
As I was about to say, the provision’s effect is that where the original investment contract provides for the contract to be changed, that would not be classed as a variation and there would therefore be no need to publish the changes. That is not a wise or sensible move, for the reasons of transparency that have been outlined and for reasons of trust. Will the Minister say what the cost would be of publishing the information required by the amendments? Is the task of publishing any changes so onerous that the costs are disproportionate and would outweigh any benefits? I struggle to see how that would be the case. If it is not the case, I can see no reason why the variation should not be published to ensure full transparency for consumers, for Parliament and for the public.

Barry Gardiner: Will my hon. Friend clarify whether, given that it has been defined that such a change would not constitute a variation, it would be the case that a Minister responding to a written question in Parliament would be able to claim that there had been no variations to the contract?

Tom Greatrex: My hon. Friend’s point is precisely why we are seeking such information from the Minister. If a variation to a contract prevented information from being made available to the public, it would be hard for the important scrutiny role to continue. The precise definitions of changes and variations are, as I am sure the Minister is picking up, of huge concern at least to those hon. Members who have made interventions.

Alan Whitehead: Will my hon. Friend also consider whether the non-disclosure of a change in strike price affects the levy control framework total for the strike price quantum over a period? If such changes are not revealed, how would that be calculated within the ceiling for the levy control framework over a period of time?

Tom Greatrex: My hon. Friend makes an excellent point. We discussed earlier the allocation process and how and when that was supposed to start. How do people know when that 50% has been reached for a change in the strike price that will affect the overall levy control framework? That is an important point and I hope the Minister will respond to it.
There are a number of concerns about paragraph 7 of schedule 3, which deals with the supplier obligation. The wording of paragraphs 7(1), 7(3) and 7(4), which deal with the payment of sums by electricity suppliers, is rather loose and fails to clarify that investors will receive the moneys due to them. Paragraphs 7(1) and 7(3) provide that regulations “may” make provision for payments by electricity suppliers or require them to provide collateral, rather than specifying that they “must”. Will the Minister explain to the Committee why the word “may” has been used rather than “must”?
A further concern is the language of paragraph 7 about suppliers’ obligation to pay. Paragraph 7(1) merely enables payments to be made under investment contracts without stating explicitly that full payment should be made in good time. The wording of other legislation may be instructive here. Section 214(6) of the Financial Services and Markets Act 2000 states:
“The scheme may provide for the scheme manager to have power…to make a full payment of compensation to the claimant”.
Regulation 17(2) of the Regulated Covered Bonds Regulations 2008 states:
“The arrangements must provide for…timely payment of claims attaching to the bond to the regulated covered bond holder”.
Those examples show that other legislation is explicit to that degree. Will the Minister respond to the concern that the language in schedule 7 is not as tight as that in other, similar legislation?
I turn briefly to amendment 75. I am sure that my hon. Friend the Member for Brent North will want to speak to his amendment, but I want to make a couple of points. I hope that Members on both sides of the Committee will look on the amendment favourably. Whether in the Energy and Climate Change Committee, during pre-legislative scrutiny or during the evidence sessions of this Committee, almost every member of the Committee has said that they favour transparency in any agreement between the Government and a generator. That point is most often made in explicit reference to discussions between the Government and EDF. During pre-legislative scrutiny of the Bill, the Secretary of State said in evidence to the Energy and Climate Change Committee:
“We will be held to account for the outcome of those negotiations and there will be real transparency about the agreement that is reached.”
I am sure that my hon. Friend will expand on these points in greater detail, but during the oral evidence session on 17 January, the UK chief executive of EDF, Vincent de Rivas, was more explicit than he had been about how important he believes transparency to be. He said:
“I am in favour of transparency for us and for all.”––[Official Report, Energy Public Bill Committee, 17 January 2013; c. 124, Q357.]
He said that, I believe, because he understands that for his business and his company, transparency is absolutely important. There cannot be any second-guessing of what he and the company have agreed to with the Government. Of course, if something is agreed with the Government, it is underwritten by the public. He may have gone off his script slightly, because he is usually very careful about what he says, but I believe that he said that because it became clear to him during the oral evidence session that the matter was significant.
I want to get across that Mr de Rivas does not seek to block full transparency, and I hope the Government do not either. Those of us who see a place for new nuclear as part of our continuing and future generation mix—not everyone on the Committee does—do not want people to be able to undermine that case, not by using available information but by second-guessing what information has not been made available or casting aspersions on it. It is important for as much of that information to be published as possible, as soon as possible, so that there is full transparency. That enables people to make a judgment. Based on that information, their judgment may well be different from views they held in the past, but at least it will be made on the basis of evidence and information that is clear and irrefutable. That is why these amendments are so crucial.
I have heard the Minister talk about the importance of these issues on a number of occasions. They remain important, and here is an opportunity to ensure that the Bill is tighter in relation to them. That would do a service to the Government and to the wider energy agenda for years to come. In the light of that, I hope the Minister will look favourably on these amendments.

Barry Gardiner: I, too, welcome your presence in the Chair this afternoon, Mr Hood. I have already experienced being brought to order by your ruling. Somebody on Radio 4 coined the word “trepidatiously” recently, so I will use it as well; I am in trepidation of your rulings this afternoon, Mr Hood.
I want to speak to amendment 75, which stands in my name, but before I do, I wish to get clarity on a point I was pursuing earlier in relation to paragraph 1(1)(a) of schedule 3. It defines an investment contract, which it says
“means a contract with an electricity generator which…is entered into by the Secretary of State, whether before or after this Schedule comes into force, on or before the earlier of 31st December 2015 and the date on which a definition of an ‘eligible generator’ first comes into force by virtue of section 6(3)”.
I looked at paragraph 6(3) of the schedule, but I came to the conclusion that it could not possibly relate to that, because that is about regulations for the purposes of investment contracts. It states:
“Regulations may…include incidental, supplementary and consequential provision”—
and so on. I therefore concluded that it must be referring back to clause 6(3) of the Bill, but I found there no provision for a date. I may simply be failing to understand the provisions, but it would certainly help me—and it may help other Members—if the Minister clarified the position, because clause 6(3) simply says:
“Regulations must make provision defining who is an ‘eligible generator’ for the purposes of a direction under this section.”
The other issue I want to touch on briefly before discussing my amendment is paragraph 1(1)(b), which states that if an investment contract relates to an electricity-generating station in Northern Ireland, it is
“entered into with the consent of the Department of Enterprise, Trade and Investment.”
I spent more than a year as a Minister in that Department, and it struck me that that rather writes into stone its nomenclature. Does the Minister propose at some stage to table a brief amendment adding “or its successor”? Of course, the nomenclature of that Department is no longer in our gift but, as I understand it, that of the Northern Ireland Assembly.

John Hayes: Perhaps we can clear that up immediately. I will certainly take a look at that and if there is a need to change the language to take account of the hon. Gentleman’s point, we will do so.

Barry Gardiner: Those were simply housekeeping points, if I may put it that way, rather than substantive amendments to be made to the Bill.
I now come to the substantive element. What is absolutely fundamental to the success of the Bill is trust. We have spoken many times in Committee about the need for investors to have confidence, to have trust in how the Government propose to carry out their affairs in respect of energy and how they propose to incentivise the industry. Both sides of the Committee have recognised that that trust is an essential precondition of getting the investment into our energy infrastructure that is so vital over the next few years. If we are to avoid the problems envisaged by Ofgem in 2017 and 2018, we need that new investment to come through, and it will only come through if there is clarity and trust.

Ian Lavery: The issue of trust and confidence in the Bill is essential, especially the confidence of the consumer. Does my hon. Friend agree that it is also essential that transparency is at the centre of the Bill with regard to CFDs and the strike price, and that changes in the strike price should be published as matter of course?

Barry Gardiner: Indeed. I do not know whether my hon. Friend was peeking over my shoulder, Mr Hood, but he has certainly taken some of the words out of my mouth. He is absolutely right: transparency is a key feature. It is a key mechanism by which this Bill will be able to work—if indeed it does. Therefore, it is in all our interests to ensure that transparency is not just implicit in the Bill, but explicit. Amendment 75 seeks to get to the heart of that, in that the schedule contains a provision that proposes not disclosing to the public information that they would anticipate having a right to know.
My hon. Friend the Member for Rutherglen and Hamilton West referred to the witness statement from Vincent de Rivaz, the chief executive of EDF. The key thing about the relationship between a nuclear supplier and the Government is this. We have a technology which demands huge up-front investment. The construction costs of the nuclear industry are enormous. Thereafter, it can run without having to purchase coal, biomass or gas, and therefore its running costs will be relatively low. The major component for an investor in nuclear is the up-front construction costs. I put to Mr de Rivaz the very problem that I think the Minister recognises: the perverse incentive. I do not in any way accuse EDF or any other potential nuclear supplier of this, but anyone who wished to gain in this area could artificially inflate the level of their construction estimate and affect the negotiations around the strike price.
Both parties agree that the strike price has to be based on a fair return on the capital investment that the investor is going to make in that technology. There is no doubt about that, and the Minister nods in agreement. Therefore, it is absolutely essential that there be transparency in that area, because if that construction cost were to be overestimated, ultimately, the public—the consumer—would be paying more than they ought to for a period of 35 to 40 years.
I speak as somebody who is absolutely solidly behind the nuclear industry. I have no brief against the nuclear industry. High up-front construction costs happen to be a feature of nuclear, but this is in no way intended to be an anti-nuclear statement. It is simply to say that the public have the right to expect full, absolute clarity and transparency about the costs involved, the negotiations that go on, and the way in which that strike price was reached. I was heartened, as I know many other members of the Committee were, when we heard the evidence from Vincent de Rivaz, as he, too, insisted that there should be transparency and clarity on those issues. The amendment seeks to ensure that there is such clarity and transparency, not only about the nuclear industry, construction risk and so on, but I think that it perhaps crystallises and is the best example of the sort of information that the clauses, as they stand, might preclude.
The way in which the Government have constructed the clause is interesting, as they have used a mechanism in paragraph 3—to get the full effect of how this functions, it is important to see the double negative that operates here—that states:
“For the purposes of paragraphs 1 and 2, ‘confidential information’ means specified information to which sub-paragraph (3) applies and in relation to which it is an initial term of the contract that it should not be disclosed.”
The paragraph continues:
“This sub-paragraph applies to information if it is…not the strike price or the reference price”
We have a double negative—“not be disclosed” and “not the strike price”—which allows that to be disclosed.
However, in sub-paragraphs (3)(c) and (d), the Government have opted not to use the double negative, which is why, in my formulation of the amendment, I have tried to adopt the very technique and mechanism that the Government have used in paragraph 3(3)(a) of the schedule, by stating:
“not information which relates to liabilities or risks that would be placed on energy consumers or on the public balance sheet.’
What are we doing here? We are trying not to interfere with the commercial process, but we are attempting to say that, if the public are going to pay the price—and they would expect to know why they are paying the price that they are—the Bill should be explicit about making that information transparent and about saying that those things ought to be disclosed. The amendment uses the technique of the double negative that the Government have already adopted in the formulation of the clause. In that respect, it provides consistency with the way in which the rest of the clause has been constructed.
My hon. Friend the Member for Rutherglen and Hamilton West made a number of other small but very important points on the schedule. There is the use of the word “may”, when it might be more appropriate to use “must”. The Minister, in responding to my hon. Friend, should think carefully about what should be permissive here, and what ought to be clear in the Bill—when something “must” happen. A clause that we are discussing relates to payments to the Secretary of State, and there must be regulations about that. They absolutely have to happen. Clarity is the essential thread that runs through everything that my hon. Friend on the Front Bench and other hon. Friends have said this afternoon. I know that the Minister agrees with the principle. He has said it before and set it out clearly in his response to the debate.

Ian Lavery: The amendment would basically allow the Secretary of State to redact any confidential information on the investment contract. Would my hon. Friend give some examples of where that would be acceptable?

Barry Gardiner: My hon. Friend sets me an intellectual challenge, which I was not anticipating, but I would always wish to try to give him satisfaction. Where would it be acceptable for the Secretary of State to redact information? Let us approach it in that way. It is right that the Secretary of State should be able to redact information where there is going to be a breach of trust and where there will be commercial sensitivities. In many ways, the clauses that I seek to excise from the Bill are good examples of situations in which it may be necessary to redact information.
Rather than give examples of where it would be right to redact information, we should operate on a principle of maximum transparency. The Bill should quite clearly set out the principle that the public have the right to know what they are paying for, either through their bills or on the Government’s balance sheet. That should be there clearly so that that right is there. To do it the other way round is to make the particular, rather than the general, the subject of the Bill. It is precisely there that we will find that legislation creeps—I do not accuse the Minister or, indeed, the Government of that—and finds other ways of covering up information.
The schedule states that one of the provisions would be simply that, if it were included in the original contract, it should not be disclosed. That cannot be a reason. Simply that it was included in the original contract can never be a reason. It is much better that we have the principle there, so that anybody can then challenge the Government on the level of withholding information, rather than try to put something in place, not with the double negative, but with the single negative, as the Government have done.

John Hayes: I know that the hon. Gentleman is moving to the conclusion of his remarks and I do not wish to delay him, but for the sake of speeding up our affairs, he has mentioned breach of confidence and commercial sensitivity, and I am sure that, in response to the earlier intervention, he will acknowledge that what is legally defined as a trade secret would also be included. So if we are dealing with those three areas, we can probably settle the matter quickly.

Barry Gardiner: I am always delighted to know that the Minister is prepared to settle the matter quickly. We certainly can—by means of a vote. If the Government are saying that they will vote with us on this one, I would be only too delighted to sit down and settle it immediately. However, I do not see that look on the face of the hon. Member for Orpington that leads me to conclude that such brevity will be the order of the day. However I can always hope, and on that hope I will resume my seat.

Michael Weir: I want to make a few brief points. The hon. Member for Rutherglen and Hamilton West quite rightly said that I was no supporter of nuclear power, and many of the provisions go around the problem with nuclear power. Other potential developers may be affected, however, particularly in the case of large-scale offshore wind. I raised the question of how we set the initial strike prices for new technologies, which may have an impact here. My concern about the provisions is how they will be perceived if they are enacted in their current form. As we all know, renewable technologies, particularly wind, have been plagued by endless arguments about the true cost of the technology and of the power to the individual.
When Vincent de Rivaz gave evidence to the Committee, he talked about the negotiations with the Government on the contract:
“What matters is that the first contract of this magnitude is a perfect example of fairness—fair for the customer, for the consumers, and fair for the investors and the policy makers. I believe that it is in within our reach to achieve that fairness in this first contract for difference. It will create a precedent, indeed, but a very positive one for others.”––[Official Report, Energy Public Bill Committee, 17 January 2013; c. 121, Q346.]
That is true, and it is interesting that he talks about creating a precedent. What sort of precedent will be created if there is a strike price in the contract that can be varied, and if the strike price is subsequently varied without it being made public? What sort of confidence does that give consumers that they are getting the best deal? There may be perfectly good reasons for the variation in the strike price, but if there are, they should be made public. The public should be aware of how the strike price has been varied and the impact that that will have on their bills. It is a question of transparency. As I said earlier, it is interesting that the example given is the variation of the strike price. That worries me greatly.

Alan Whitehead: In looking at all the amendments, I think we need to consider how the schedule will work. I have some concerns about the architecture of the schedule, and they relate to several amendments, especially those that deal with variations on investment contracts. I am also concerned about how the provisions in schedule 3 will work with the wider provisions on contracts for difference in general. We are discussing a specialised series of provisions relating to a specialised form of contract for difference, which has a whole schedule to itself, on the basis of decisions that will be reached before contracts for difference as a whole come in. I would welcome some explanation from the Minister of exactly how the architecture will work. Ideally, that explanation should assuage my considerable concerns about whether the architecture will work as described, and whether it will be transparent and fair to everybody.
The explanatory note states that investment contracts, and thus related CFDs,
“are intended to be entered into during a relatively short period of time and are therefore a transitional measure for before the enduring regime is fully implemented.”
Investment decisions and contracts will be discussed, and although investment contracts will predominantly relate to nuclear power, they can be applied to other forms of low-carbon energy for the future and provide investment instruments on a wider basis. Because those investment instruments are to be entered into before CFDs as a whole become available, theoretically the strike price is known at that point. Therefore what will also be known is how the quantum of CFDs that have been provided by that particular investment instrument will flow into the wider provisions relating to CFDs, once they become available and once we get into the normal regime, initially of allocation, and subsequently of auctioning and then, within the allocation and auctioning of CFDs in general, relating those processes to the levy control framework within which all those CFDs will sit. Not only will those CFDs as a whole sit within that levy control framework, once those have been agreed, but the investment instrument CFDs that have been agreed will flow into that overall framework and will subsequently be a part of that. The rationale, so I understand—

Jimmy Hood: Order. I observe a number of conversations taking place on the Government Benches. It is not right. I ask Members to pay attention to the hon. Gentleman who has the floor and is speaking about his amendment.

Alan Whitehead: Thank you, Mr Hood. I appreciate that what I am setting out this afternoon may not be the most riveting of subjects. Nevertheless, it is important in terms of how we understand the overall schedule. When those investment instruments, and the CFDs arising from them, have been decided upon, it is important that the maximum amount of information is known about those CFDs and all the circumstances surrounding them because, among other things, the deal that is made at the time those investment instruments are concluded is potentially crucial for how CFDs work overall.
The architecture of the schedule promotes a starting advantage for those CFDs that have been decided by an investment instrument. They are put to the front of the queue and concluded before CFDs as a whole have started. They are then “droppable-inable”, if such a term exists, to the process as it goes on. They may well be dropped in from that investment instrument in a particular year or they may be held effectively by the agreement that has been made on the basis of the investment instrument over a number of years. In terms of the levy control framework, the availability of particular CFDs at any one time and, indeed, in any one year is potentially crucial for other investors who have not taken part in the investment instrument process. They will want to know whether the CFDs that they have negotiated as part of the wider process can start at the time that they thought they could start.
If they are misled, misguided or ill informed about this process, it could be crucial for their own investment. They may think they have sorted everything out as far as their contracts are concerned, they have all their potential link-ups with the National Grid sorted out, they have the supply chain sorted and they are ready to go. They know they have an out-date, they know that is when their CFDs are going to start and they know in outline that within the levy control framework there will be a certain amount of CFDs available per year, without busting the terms of that framework, as it goes up to 2015 and within the total that is now in front of us for 2020. Over that period, in principle, it will be of very considerable interest to a number of large developers who are not within the investment instrument landscape that they are reasonably secure about what is happening in their landscape.
As I see it, there is one obvious problem and one less obvious problem with the architecture of the schedule. When an investment instrument is decided on—it depends on negotiations not just on the strike price, but on the further terms of the investment instrument—it is not entirely clear whether that instrument can crash into the wider CFD pool at a time determined by the agreement and not the subsequent considerations of how the CFDs will work. If that is the case, it seems rather important that everyone know everything about that initial investment contract, so they can at least factor in that matter, difficult though it may be for them.

Barry Gardiner: I am trying to follow my hon. Friend, but I fear that I am not managing to keep pace with him. Is the key problem the investment decision that a subsequent investor must make and their information—or lack thereof—about the previous contracts and the strike price agreed; or is it when they apply to start with their own CFDs in the market?

Alan Whitehead: My understanding is that it may well be the latter. It is clear in the schedule that the strike price set at the time of the agreement of the original investment contract cannot be redacted and not disclosed. It will be laid before the House, and we will know what it is. That is not the issue; the issue is other circumstances surrounding the agreement of that investment contract, which might relate not to the strike price but to the circumstances in which the investment contract can be deployed.
Those circumstances might be deemed commercially sensitive. Let us say that a large multinational company is setting up a nuclear power plant, and that it has negotiated a strike price, which is public and transparent, and an investment contract before everybody else, which, among other things, gives it comfort—that is part of the schedule’s purpose—that the company will indeed get its CFDs when the power plant starts operating.
However, if the company were to say during those negotiations, “I don’t honestly think the power plant is going to operate before 2024,” that might be regarded as confidential information because of what other operators might do with it. Therefore, in relation to the provisions not related to the strike price, it is more than possible that there will be inadequate information for other people outside that investment instrument landscape to act on because of the mystery surrounding the intentions of the people within the investment contract landscape, which may have been decided by agreement to be commercially sensitive. For example, exactly when will the power station produce? Will it be subject to delays that the company does not wish to disclose? Is there a target that can feasibly be reached, but the investors are not certain of it? Those issues seem to be covered by the schedule as redactable pieces of information, over and above the question of the strike price or the reference price.

Barry Gardiner: Is it therefore my hon. Friend’s contention that, as drafted, the Bill builds an inability to educate oneself into the market, so that, although it is available, information that one would properly wish to take account of in one’s own subsequent investment decisions or the structuring of one’s commercial operations is being withheld, and that that will improperly impair the functioning of the market?

Alan Whitehead: I do not say to my hon. Friend that information is going to be improperly withheld, or that the situation he describes will inevitably happen; but the architecture of the schedule is such that that is possible, and it is also possible to advantage someone who has received an investment contract. That person may have perfectly proper concerns about what will happen to them, but, as CFDs are currently proposed, other people will be considerably disadvantaged. It is important that we get the whole architecture right for all CFDs.
There are worse problems to follow. Although it is stated that the investment contracts are intended to be entered into during a relatively short period, that is not the case for variations: as I read the schedule, it allows a variation on an investment contract to come into play at a time and date after the overall process has started, even though the original possibility of there being a variation had been agreed at the time of the original contract. That is what seems important to me about paragraph 2(4), which states:
“This paragraph does not apply”—
that is, the paragraph about disclosure, and laying matters before Parliament in particular—
“in respect of a variation which is made in accordance with the terms of an investment contract.”
What the schedule appears to say is that any variation on an investment contract must be laid before Parliament unless it is not that, and if it is not, a number of other things that apply to a variation that is laid before Parliament also do not apply. But a variation can take place at a date that is substantially removed from when the original investment contract was put in place. That substantially removed date may be right in the middle of the operation of the general CFD pool arrangements, as those go forward, and right in the middle of the decisions that are being made by those investors who are outside the investment contract landscape.

Barry Gardiner: Once again, my hon. Friend has put his finger on something of fundamental importance: he has shown the Committee that the schedule is a lawyer’s paradise. Am I right in thinking that, if I were a lawyer constructing the initial contract, I would be most sensible to build into it a subsequent variation that is allowed under paragraph 2 of the schedule, to make sure that my competitors in the market were maximally disadvantaged by not being able to predict or see quite how it was that the strike price that I have negotiated had been achieved?

Alan Whitehead: My hon. Friend perhaps discounts the normal generosity and clear-sightedness of most investors who would be engaged in such contracts, but yes, he is right: that is an example of the possible temptations to game, which we have discussed previously in Committee, that could be inherent in some of the arrangements established by the Bill. I am not saying that that is a very likely proposition; nevertheless, one of the things we have to do in legislation is to make sure that unlikely things are accounted for, and it certainly seems to me that there are problems in that respect.
I have mentioned two problems; the third problem relates to the construction of the counterparty. As far as this schedule is concerned, it appears to be the case that the counterparty may be the same one as that for CFDs in general, but it may be different one; it may be a counterparty specifically for the purpose of these investment instruments. Since these investment instruments are being drawn up in advance of CFDs in general, it may be the case that a counterparty for these investment instruments is determined before a counterparty is determined for CFDs in general. Whether there should be one or multiple counterparties was debated before, and we seemed to reach the—frankly, rather lame—conclusion that although there might not be one counterparty, there would be one counterparty per contract, and therefore people would be clear about their particular contract relating to a particular counterparty and they would have that degree of certainty as far as that was concerned, even if there was not one counterparty for all CFD considerations.
This does seem to get a little serious here in as much as if we have one counterparty coming in for investment instruments, and another coming on stream for overall CFDs, and the idea that the counterparty arrangements relating to the investment instruments can crash into the general pool at one particular stage, what is the determination of equality between those two counterparty arrangements? How can those streams be successfully joined together as far as potentially different counterparty arrangements are concerned, when different things appear to be called the same things, that is a contract for difference? Is there a problem, or might there be a problem, relating to what arrangements have been made concerning an investment instrument counterparty generically? What instruments might have been made concerning a general CFD counterparty generically? Do those things actually match up? Are they, and will they be, compatible with each other? If they are not compatible with each other, is it not the case that an advantage that has been conferred, possibly by arrangements not disclosed in these investment instruments, may actually run on into a period when those are supposed to be equal in terms of what judgments are made on the timing, deployment and auctioning arrangements for contracts for difference in the general market.
Hon. Members will by now have completely glazed over, if they had not glazed over before this exposition. But, it is an important point that we need to get that architecture right. It may be that the detail of this particular schedule is such that there are answers hidden away in corners to the particular concerns and issues that I have raised. I cannot immediately see how some of those problems can easily be avoided, particularly in the context of variations of CFDs, which do not even have to be laid before Parliament, and which can take place within the terms beyond which the investment instruments should have wound themselves up, as it were, once the main CFD activity gets under way.
I would very much welcome the thoughts of the Minister on a number of these issues, and whether—if they cannot be easily explained and resolved today—we can actually hear further should inspiration come outside this Committee on how these problems might be resolved, either within the way the schedule is constructed, or whether something like some of the amendments tabled today could help—I think they do—with the resolution of a number of those issues. It is important that we get it right, and we have one shot at getting this right. If it does not work over a period of time, we will very much live to regret it in terms of future investment, not just in relation to investment instruments, but the much wider basis of investment within CFDs generally.

John Hayes: This has been an important discussion about the issue of transparency, which is a recurring theme in our considerations. In many aspects of life, opacity is underrated. Our relationship with the divine, for example, is shrouded in a desirable mystery. Love itself, of course, is better for being opaque in many ways. In the exercise of Government, however, particularly in relation to the Bill, transparency is very important. I am not yet clear—the scrutiny of the Committee has been helpful in making me ask such questions—that we have gone far enough in that regard. That is why I welcome the contributions of both Opposition and Government Members in ensuring that not only the checks and balances, but also the reporting functions and lines of accountability that permeate the Bill, are sufficient for the House, the wider public and the interests of both Government and business to prevail in a way that provides palpable evidence of both the Bill’s efficacy and proper practice—good governance. I recognise that the amendments are helpful in exploring those issues.
I want to deal with a couple of technical points. The hon. Member for Brent North, with his typical courtesy, described them as minor, but that was an understatement as they are important. Let me be clear about the issue in Northern Ireland that he raised. We have used the proper way to refer to its Departments. We took advice from its legislative counsel on that specific point, so we can be comfortable that we are in the right place in that regard, but it is helpful that he raised the matter.
With regard to the reference to section 6(3) in schedule 3, which the hon. Gentleman discussed at some length, it is true that no date is specified, the effect therefore being that there is a long-stop date of 31 December 2015, but regulations can be made earlier. In essence, the provision, as drafted, provides a final date or safeguard. The purpose of that is to avoid an overlap between the transitional arrangements and the main scheme—CFDs. I thought that I had dealt with his point, but it is clear that I have not entirely satisfied him.

Barry Gardiner: My continuing scepticism is around paragraph 1(1)(a) of schedule 3, which states that
“the date on which a definition…comes into force by virtue of section 6(3)”.
My reading of section 6(3)—meaning clause 6(3) in the Bill—is that no provision is made for that coming into force. It defines, but does not make provision for the coming into force of that definition. I was therefore not entirely clear whether that clause can carry the weight that has been put on it.

John Hayes: For the sake of clarity, let me say that I will of course ask my officials to look at that matter specifically and at whether the drafting is adequate for its purpose. It was useful to have that discussion, and I am grateful to the hon. Gentleman for raising the issue. If we need to do more, we will do it.
I move on to the fundamental issues associated with the amendments and the debate we have had. All such issues come back to the issue of clarity and transparency. I want to be a bit more specific about that. This is about both the reporting function, which I mentioned a moment ago, and the drafting of what we do being sufficiently clear so as not to lead to unintended consequences. That was the theme taken up by the hon. Member for Southampton, Test and I will deal with some of the particular points he raised in a moment.
As I said, my own thinking on this, as it should be, is being informed by our consideration and there is a need to be absolutely confident that the Bill is in the place that it needs to be in this respect. If we need to do more—not just on particular issues such as those I just mentioned but on the general issue of transparency—we will take that away and give it further serious consideration.
I am mindful, in that regard, of the comments made about one of the intended consequences: the effect on costs and, particularly, the cost of consumer bills. I understand that this is about not merely the proper scrutiny of Government by this place but the effectiveness of the reform. In fact, the reform itself is effected by the clarity that has been called for by a number of hon. Members.
I hope that that commitment to transparency in the round provides reassurance on a number of these amendments, because a repeating theme emerges; they each deal with aspects of the Bill, but there is a consistently emerging theme of transparency that has provoked and informed those amendments and my responses to them.
I want to deal specifically with the matters around investment contracts and also to respond to some of the matters raised by the shadow Minister. Let me deal first with investment contracts and particularly with amendment 75, which a number of speeches focused on. The amendment, tabled by the hon. Member for Brent North, concerns the important question of what information is removed from investment contracts that are laid before Parliament.
We have had an exchange on that already, which I hope will allow me to be rather more concise than I might have been otherwise. I think that the Committee generally acknowledges that, on those matters that in any other circumstances would be defined as trade secrets—that is a legal definition, not something that I am making up as I go along—it would not necessarily be in the Government’s interest, or the wider interest, to publish. Of course, there is also the issue of law.
Secondly, the hon. Gentleman, in an exchange with his hon. Friend the Member for Wansbeck, spoke about the commercial interests that may sit outside the normal definition of trade secrets, but where, as he acknowledged, the commercial interests of the company might be compromised. Those details may be redacted from any publication of the kind that we are discussing, and I think that it was widely agreed that that is right.
Thirdly, there are the matters that I believe the hon. Gentleman described as breaches of trust—[Interruption.].

Jimmy Hood: Order. The lady cannot walk into the middle of the Committee, whether she is a police officer or not.

John Hayes: I will resist the temptation to add to that.
What the hon. Member for Brent North described as breaches of trust, I might describe as breaches of confidence. They might be actionable breaches of trust or confidence. I think we would agree that such things might be redacted.
The Government fundamentally believe that the vast majority of information in investment contracts should be disclosed, in particular information about likely cost to the consumer, the point raised by the shadow Minister. That is why a defining and unusual feature of an investment contract in the Bill is that it is laid before Parliament. It is not normal practice for legislation to suggest that contracts that are entered into are laid before Parliament.
It is possible that some contracts may contain detailed financial information belonging to a generator that falls into one or more of the categories that I have just described. Disclosure of such information could significantly harm the interests of a generator. One result of that would be to discourage businesses from entering into that kind of relationship. If they felt that the Bill did not provide adequate protection of their interests in the way I have described, it is unlikely that they would want to be involved in negotiations that might lead to an undesirable outcome for them in respect of their competitive, business and shareholder interest. We would all again acknowledge that.
If the effect of not putting into place these protections was to undermine the process, making it harder for Government to negotiate investment contracts that represent value for money for consumers, it might well be that we cut off our nose to spite our face. On that note, I give way.

Ian Lavery: Is there not a danger that so much information could be redacted or classed as confidential that publishing any report at all would be non-transparent?

John Hayes: That is precisely why we are having this discussion and why Government are considering the matters and why the Bill explores exactly walking the line that the hon. Gentleman describes, providing enough information so that the House and the wider public can be confident that the deal being struck is the right one while on the other hand not putting in place impediments that prohibit or discourage the engagement of those businesses that we need to negotiate the contracts that will lead to the investment essential to serve the public interest. There is a tension between two different manifestations of that public interest, which the Government are attempting, using all their resources and considerable skills, to navigate with the diligent and generous involvement of Members of this Committee, particularly the hon. Member for Brent North, to whom I give way.

Barry Gardiner: I understand all that the Minister says and I appreciate the commercial sensitivities and the need not, as he put it, to cut off one’s nose to spite one’s face. Schedule 3 paragraph 2(2)(b) says, regarding the Secretary of State laying the information before Parliament,
“after the Secretary of State has excluded from the contract”.
Will the Minister clarify? Is it intended that that exclusion should be by redaction, by putting a black pen through it, thus making it clear that something has been excluded at that point? That is very different from taking the matter out altogether, so that the information reads as if it were never a part of it. If he means redaction, it should say redaction. However, I do not think the Minister does mean that, which leads one into precisely the sort of problems I anticipated. I will sit down.

John Hayes: That is an interesting point. Again, I do not want the Opposition to think for a moment that I am excessively soft. I do not want to think that generosity is the only thing that characterises my ministerial style. On that note, I will take it away and look at it again. It is an interesting point, because its essence concerns whether people have a feel—for example—for the volume of information that is being published compared with the volume that is not. It should be clear that the redactions—to use the word again—are marginal, and based on the three specific areas I described that are reinforced in the legislation; a trade secret, a commercial interest that could be prejudiced, or a breach of confidence. If this is clear it would imbue what we do with a degree of clarity and popular confidence. I think people would have confidence in the process.
These three areas are not weak tests. For example, prejudice cannot be trivial or insignificant in its effect, as those members of the Committee who take an interest in the law will understand; I suppose we all by nature take an interest in the law. Prejudice means a real and substantial negative impact on a person or an organisation.
The amendment proposed would remove these last two grounds. Given that the hon. Gentleman acknowledged in his speech that the last two grounds had some merit, I am not clear that this particular amendment is the best way of proceeding with his mission. It would also require that any information related to liability or risk to consumers were disclosed. The problem is that that encompasses a very broad set of information, quite possibly including detailed financial information of the very kind that I mentioned, which falls into one or more of the three categories that I mentioned a moment ago.

Barry Gardiner: May I help the Minister?

John Hayes: I am happy to give way, although I want to make some progress.

Barry Gardiner: I am sure we all do. On that point, there is still capacity within sub-paragraph (3)(b), and also in sub-paragraph (2). If those things were indeed trade secrets and subject to the strictures that he has observed, they could have been specified in the initial terms of the contract and in that way excluded from disclosure. I believe that the rest of the paragraph is strong enough to provide the powers that he requires in those specific incidents, if it was initially specified as such rather than leaving it up to his later determination.

John Hayes: That may be true, but I am not wholly convinced by that argument. I am sympathetic to the broad thrust of the argument that the Bill needs to be very clear, and to emphasise the transparent disclosure of the appropriate kind of information. However, the risk of drawing into that consideration a subject as broad as consumer interest, which could be interpreted by many people in many ways, is probably one that no Government would be entirely comfortable with. I am not entirely convinced by that argument, despite my generosity in more general terms, which is becoming famous.
Amendment 79, which is tabled by the shadow Ministers, deals with the matter of when a contract is laid before Parliament, and proposes that it be laid within three days of being entered into. Let me deal with the points raised by the hon. Member for Rutherglen and Hamilton West. He asked what a material increase in cost price was. For the purposes of our legislation, “material” is usually defined as anything other than insignificant or trivial; in other words, the threshold is very low.
The hon. Gentleman asked why we suggested publishing a contract as soon as reasonably practicable, and said that the tests of reasonableness and practicability were excessively open-ended. The reason why we want some flexibility is that a contract could not be laid before Parliament during a recess. The problem with a period of three days is that it would have to be three parliamentary days, which becomes somewhat complex.
We are not saying for one moment that the question of when we publish the contract should be left to the Secretary of State’s discretion. Indeed, paragraph 1(7) of schedule 3 makes it clear that there is an obligation to publish when reasonably practicable. Although there is flexibility, the Secretary of State’s power is not permissive. That, of course, is a question of fact and is widely used in statute. Again, it is not something invented for the purposes of the Bill. It is more common in statute not to specify time limits of the kind suggested in the amendment, although I hear what the hon. Member for Rutherglen and Hamilton West said. It is a question of getting the balance right between practicality and urgency, but I put it on record that I believe that that should be done with appropriate alacrity. In those terms, “reasonably practicable” should mean “as soon as possible”.
I reinforce the point that beyond my own assurance, it is in the interests of the Government and contractors to lay such contracts with speed. It is not in the interests of Government or the businesses involved to delay. They will want those matters on the record as soon as possible after the deal is signed. That was reinforced by the evidence from Vincent de Rivaz of EDF, who wanted the system to deliver not only quickly but transparently.
Amendment 81 relates to the requirement that a contract be re-laid in Parliament if it is amended in a way that materially increases the costs to consumers. The amendment would remove the clarification in paragraph (4) that the requirement does not apply to variations occurring in accordance with the terms of the contract. I understand the intention behind the amendment, but I do not think that it is necessary or practical. A contract may stipulate that certain elements, such as the strike price, must be adjusted from time to time according to a process set out in the contract: for example, due to the application of the inflation index or qualifying changes in law. Again, that type of provision is common in commercial contracts, particularly those involving infrastructure or investment. The effect of the amendment would be that a contract would cease to be an investment contract for the purposes of the Bill whenever it was likely that costs to consumers would increase, following the operation mechanisms set out in the contract.
In practical terms, that would mean that funds to make payments under the contract could not be raised under the supplier obligation regulations until the contract had been re-laid before Parliament, rendering the contract inoperable. Given what I said a few moments ago about the practicalities of laying such contracts before Parliament, that could prove an undesirable obstacle. Although I accept that it is an unintended consequence of the amendment, it is a consequence none the less.
The matters that I have described should be apparent from the contract laid before Parliament, which will detail elements likely to change under the mechanisms specified. The overall purpose of this paragraph is to ensure that where the parties to the contract agree to vary it in a way not provided for under the terms of the contract, and it would be likely to increase the costs to consumers, the amended contract must be laid before Parliament again.
Both by the tests of practicality and necessity, the amendment should be withdrawn. I say that, rather than “rejected”, because I do not want to be unnecessarily antagonistic.

Michael Weir: I am interested in what the Minister said about the adjustment of the strike price. He suggested that the only way it would be adjusted is if it were in the contract, perhaps via an inflationary index. Is this not an important point for consumers? Every time energy prices go up, there is an outcry, for obvious reasons. In effect, the Minister is saying that if there is an inflation adjustment, consumers will not be told when it comes into being, because it is not laid before Parliament and made public. Is that not providing a hammer to hit consumers with?

John Hayes: The business we are in—of reforming the market—is designed to create sufficient confidence to facilitate investment around a negotiated strike price which is specific to a particular generating area, or for enabling a particular project. The essence of that negotiation is that we take into account a range of variables, which might include modelling the likely effect of inflation, as one would expect in any commercial negotiation of this scale and kind. I am sure the hon. Member for Angus is not suggesting that we unravel the whole principle of long-term contracted prices on the basis that it is the only way of creating the kind of responsiveness to circumstances that he describes. That would be incompatible with getting the level of certainty necessary to stimulate investment. I am at a loss to know what the hon. Gentleman wants.

Michael Weir: The point is that I would have thought anybody negotiating a strike price—for whom it is effectively a long-term contract, the object of which is to create certainty over the long term regarding the price being paid—would take into account inflation projections at the outset. It should not need to be changed on any sort of basis later in the contract, apart, perhaps, when there is unexpected massive inflation, which is unlikely in current circumstances. The Minister is opening up an unnecessary difficulty.

John Hayes: Clearly, in the process of negotiating one is driven by the economics. The nature of the business of negotiating a strike price is that at the heart of the Government’s position is the desire to protect both taxpayer and consumer interests. The essence of the negotiation, implicit in the Government’s position, is defending the consumer and the taxpayer. The fact that we will then provide in this part of the Bill both the detail of that strike price and the business that has gone into arriving at it, indicates that we are not shy about the marriage between the commercial interest of the developer and the public interest, which we will champion. I do not think there is any obfuscation about the salience of public interest in this.
It may be that the hon. Gentleman has a streak of cynicism running through him.
 Mr Weir  indicated dissent.

John Hayes: I say that kindly. It may be that the hon. Gentleman is less subtle about the noble purpose in which we are all engaged than I am. Perhaps I am an idealist, but my idealism is tempered by the street wisdom that I have gained through my political life and in the rest of my life. The Government, although they can have noble ambitions, also have a dose of street wisdom sufficient to ensure that they get the best possible deal for consumers. I just hope that the hon. Gentleman will understand that that is the direction in which we are heading.
On renewables and the points made by the hon. Member for Southampton, Test, we intend to issue an update on FID—final investment decision—enabling for renewables shortly. That will include a process of ensuring investment contracts for renewable projects after publication of both the draft strike prices and the contract for the enduring regime in July 2013. The electricity market reform programme has been designed to stimulate investment in carbon capture and storage—as he knows—renewables and new nuclear. The Government are also committed to pursuing a legally binding target for generation from renewable sources by 2020, as he also knows.
The overall budget for low-carbon support has been set to accommodate the Government’s diversification and decarbonisation objectives. Agreeing an investment contract for nuclear does not detract from the Government’s commitment to other technologies through the mechanisms set out in the EMR. That is the essence of the point the hon. Gentleman made. I understand why he makes that point, and it is true that at the very back end of the levy control framework period, some of that resource—that £7.6 billion—might be dedicated to nuclear. Of course, the build time for nuclear is such that it would be at the back end. Similarly with carbon capture and storage, it is possible, as he implied, that that might happen. However, he should not assume for a moment that that undermines or dilutes our commitment to renewables as an important part of the mix that we regard as vital to create a resilient, sustainable generating resource.

Alan Whitehead: The Minister may not have got the full thrust of what I was trying to point out, which is that third tension in terms of fairness—between what is happening with investment instruments, and with the pool of CFDs outside investment instruments. I of course accept that there will be nuclear investment instruments. There may well be CCS investment instruments. It is a question of ensuring that both ends of that arrangement are fair to each other, and what I have suggested, among other things, is that that fairness could be compromised by the schedule’s particular architecture.

John Hayes: I understand that. Perhaps I can best summarise the position by saying that the investment contract is equivalent to having been allocated a CFD. There is no further allocation by the Secretary of State or the national system operator under chapter 2 of part 1. The regulation-making and other powers in schedule 3 are very similar to those in chapter 2 of part 1. That is so that these arrangements are applied consistently, across CFDs and investment contracts. This is certainly a worry that has been expressed.
If the hon. Gentleman is not confident about the detail of what I have said, I will be more than happy to deal with him directly on those queries. I hope that all members of the Committee feel that I am focusing on their specific concerns, particularly in relation to these technical aspects of the Bill, in a way that gives them certainty that the Government are considering these matters properly. I will therefore come back to the hon. Member for Southampton, Test on the specifics if what I have said so far is not sufficient to persuade him of the virtue of our case.
As I have said, I consider that the other amendments tabled to schedule 3 fall within the category of general transparency and visibility to Parliament, which I have already said I am committed to considering further ahead of consideration on Report.
I think that I have dealt with most of the matters that were raised. On the cost of publication, it is not necessarily costly to publish. The point is that the provision in paragraph 2 affects the definition of contracts. I have asked my officials to look at the likely cost of publication but I do not think it should be a barrier to the desire for transparency or clarity that lies at the heart of what we want to do. I hope that hon. Members are reassured about my commitments and that the amendment will be withdrawn.

Barry Gardiner: I have listened carefully to the Minister. He has been on his feet a long time and is taking a great deal of trouble and care to respond to the points that we have made. I am afraid that at this stage I am not prepared to withdraw the amendment. I would like to press it to a vote because I think the principle is important to establish.

Tom Greatrex: The hon. Member for Angus is right. This is not just about nuclear. The reason that we got on to talking about nuclear is because that is probably the issue that is most current. As my hon. Friend the Member for Southampton, Test said, it affects a number of other things as well. I am conscious that the Minister has spent some time trying to respond in detail to the points that have been raised. He rightly described it as an important debate but talked about the importance of balance and walking the line. It is appropriate that we try to get this right. I take his point in relation to amendments 78 and 79. I will seek to withdraw amendment 78 and I will not press amendments 79 and 80, but I will press amendments 81 and 83. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment proposed: 81, in schedule 3, page 100, line 44, leave out sub-paragraph (4).—(Tom Greatrex.)

Question put, That the amendment be made.

The Committee divided: Ayes 9, Noes 12.

Question accordingly negatived.

Amendment proposed: 75,in schedule 3, page101,line14, leave out sub-paragraphs (c) and (d) and insert—
‘(c) not information which relates to liabilities or risks that would be placed on energy consumers or on the public balance sheet.’.—(Barry Gardiner.)

Question put, That the amendment be made.

The Committee divided: Ayes 9, Noes 12.

Question accordingly negatived.

Amendments made: 23,in schedule 3, page103,line3, leave out
‘, an investment contract counterparty or a CFD counterparty’.
Amendment 24,in schedule 3, page103,line4, at end insert—
‘(1A) Regulations must make provision for electricity suppliers to pay an investment contract counterparty or a CFD counterparty for the purpose of enabling payments to be made under investment contracts.’.
Amendment 25,in schedule 3, page103,line14, at end insert—
‘(3A) Regulations which make provision by virtue of sub-paragraph (1) or (2) for the payment of sums by electricity suppliers must impose on the person to whom such sums are to be paid a duty in relation to the collection of such sums.’.— (Mr Hayes.)

Amendment proposed: 83,in schedule 3, page103,line27, at end insert—
‘(e) an annual report by the Secretary of State laid before Parliament on the impact of provisions under this section on consumer bills;
(b) the issuing of notices exempting energy intensive industries from the provisions under this section.’.—(Tom Greatrex.)

Question put, That the amendment be made.

The Committee divided: Ayes 9, Noes 12.

Question accordingly negatived.

Amendment proposed: 69,in schedule 3, page103,line41, at end insert—
‘(1) Regulations shall make provision for—
(a) the recovery by electricity suppliers of any amounts paid to an investment contract Counterparty or a CFD Counterparty by virtue of paragraph 7;
(b) the return by electricity suppliers of any surplus paid to them by an investment contract Counterparty or a CFD Counterparty by virtue of paragraph 8;
(c) provision made by virtue of paragraph (a) in this section shall include provision about recovery from customers; and
(d) provision made by virtue of paragraph (b) in this section shall include provision that any surplus be returned to customers.’.—(Tom Greatrex.)

Question put, That the amendment be made.

The Committee divided: Ayes 9, Noes 12.

Question accordingly negatived.

Sitting suspended for a Division in the House.

On resuming—

Amendment made: 26, in schedule 3,page107,line22, leave out sub-paragraph (2).—(Mr Hayes.)

Schedule 3, as amended, agreed to.

Clause 34  - Power to modify licence conditions etc: market participation and liquidity

Question proposed, That the clause stand part of the Bill.

Luciana Berger: It is a pleasure to serve under your chairmanship this afternoon, Mr Hood.
Clause 34 is important. It enables the Secretary of State to modify licence conditions and electricity industry codes, such as the balancing and settlement code. Those powers can be used to facilitate participation in the market by licence holders and others or to promote liquidity.
Out of the Energy Bill’s 126 clauses, this is the only one that addresses liquidity in the energy market. Even then, it does not propose any concrete action. All it provides is a backstop power, with no information about how or when the Government would use it to encourage market participation or improve liquidity. I hope that the Minister may enlighten us as to what exactly the clause would, and would not, allow the Secretary of State to do, and what the Government’s intention is for including the clause but without any details about how they will use it.
After all, the case for reforming our energy market is well documented. Energy bills are soaring. I find myself making this point often, but it is important to reiterate: since 2010, energy bills have increased by £300 per household, driving up inflation and contributing to the cost of living crisis that afflicts millions of families across the country. The energy market is dominated by just six companies; in fact, 99% of households get their energy from one of the big six.
That lack of competition means that energy prices are higher than they might otherwise be. A recent report by the Institute for Public Policy Research suggests that, with more competition in the market, bills could be £70 less a year. In addition, switching between energy suppliers reached its lowest level in the first quarter of 2012, not because customers are happy with their energy providers, but because there has been a loss of faith in the energy market. At a time when energy bills have increased sharply and when complaints against energy suppliers are at near-record levels, it is not credible to suggest that people are staying with their existing supplier because they are satisfied.
Unlike most retailers, energy companies sell us a product that we all have to buy in order to keep warm, to cook, to clean or to watch TV. People cannot opt out of buying electricity or gas if they want to look after themselves. There is, therefore, a strong case for arguing that energy needs regulation of a different order to almost all other goods and services and that even consumers who do not want to engage with the market should be protected from being ripped off. At the moment, any attempt to accurately estimate the true cost of energy supply is hampered by the lack of publicly available information. All the big six energy companies both generate and retail power, which means the cost to them of the energy they generate is not reflected in the wholesale price. Such vertically integrated companies have every reason to keep wholesale prices high, as it enables them to remain profitable while claiming that their retail margins are low. The wholesale market is only an indication of energy prices, not a definitive guide, because electricity is predominantly bought and sold through bilateral trades that are not made public. Prices and levels of profit should be set by a properly functioning competitive market, but there are strong grounds for believing that liberalisation has not led to such a market. The domination of the six businesses does not, in itself, indicate that competition in the market is ineffective. However, the fact that no new entrant since liberalisation has achieved anything like the scale of operations to challenge the big six suggests there are significant barriers for newcomers.
Energy companies frequently assert that electricity and gas prices in the UK are among the lowest in Europe—there is a Government Back-Bench Member who is keen to make that point at the many opportunities that we have in Parliament—but that fact is true only when tax is included, because UK tax levels for gas and electricity are comparatively low. However, tax is a Government instrument, not a feature of market efficiency, and when tax is not included, the UK sadly compares much less favourably. In 2011, UK electricity prices in pence per kWh were 5.3% higher than the EU15 and G7 median and 19.1% higher than the EU27 median. UK gas prices, also in pence per kWh, still compare favourably, although in 2011 the UK gas price, excluding tax, went above the EU27 median for the first time. Although international comparisons are an imperfect measure of market efficiency, they do suggest that there may be scope for greater efficiencies.
If pricing is competitive, wholesale cost falls should be passed on as quickly as cost increases. In 2011, Ofgem found evidence that energy suppliers were slower in passing on reductions in wholesale energy costs than they were in passing on increases. Analysis by the consumer watchdog Consumer Focus also found a gap between the price energy companies buy electricity and gas at and what they sell it to the public for. Its research shows that even though the wholesale prices of electricity and gas have both fallen since 2008, retail prices for both are still significantly higher in 2012 compared with 2008.
To ensure that people are paying a fair price for the energy they use, we need to tackle the root cause of the problem, and to do that we need a radical overhaul of our energy market. I use the phrase “our energy market” very carefully, because the spirit of our interventions and discussions on clause 34 is intended to provoke the Government to look carefully at how we can better reclaim our energy market so that it will work for all citizens, and not just for the energy companies. We like to call it a one-nation energy market.
It is time to open up the market, so that there is more competition and greater transparency. I want to share with the Committee something that I know the Minister has heard before, but it is important to put it on the record so that he can respond to it. We would force the energy companies to pool the power they generate and make it available to any retailer in an attempt to open up the market and to put downward pressure on prices. Energy companies always cite wholesale prices as the reason for bills going up, but bills never get reduced by the same extent or at the same speed when the wholesale price falls. The Bill could have scrapped the old model of unaccountable markets and secret deals and created a new, open, competitive market for energy by introducing a pool.
We have heard Government be hostile to the idea of a pool. Their rationale is that it did not work in the past, but the market has changed, and it is important to note that when the pool was last in operation, there were effectively just two generators—people often refer to it as the power duopoly—and the pool was one-sided, with just the generators placing bids. Today, there are many more generators, so the issues we saw with the dominance of National Power and PowerGen in price setting in the previous pool would be much less of a problem, particularly if the pool was two-sided and both buyers and sellers could bid into it, as happens with the Nord Pool in northern Europe. The Nord Pool receives purchase orders from those who want to buy power, sells offers from those who want to sell and aggregates the orders and the offers to arrive at a price for each hour.
A pool would have three clear advantages over the current market arrangements. First, it would increase transparency, which is a word that we have heard many times over the past five days. I am sure that we will continue to discuss that theme over the rest of the Committee. At the moment, no one really knows what the true cost of energy is, because most of it is bought and sold through bilateral trades that are never made public. If all the energy had to be traded through an open pool, those secret under-the-counter deals would end. Companies would no longer be allowed to self-supply, and we could establish a robust market reference price. If energy companies tried to blame wholesale costs for putting up bills, we would be able to see for ourselves whether that was true. When it comes to setting strike prices and reference prices for contracts for difference, as proposed in part 1 of the Bill, we would be in a much stronger position to set the right price, which is vital to ensure that consumers get a fair deal.
The second advantage of a pool is that it would increase competition. If energy companies had to sell all their generation and buy all their supply through an open pool, anyone could compete on price, to generate power or sell it to the public. That would encourage new entrants to enter the market, provide fairer access for independent generators and community and co-operative energy schemes, increase competition and put downward pressure on prices.
Thirdly, a pool would increase liquidity. We hear a lot about liquidity and while there have been some improvements in liquidity on the day-ahead market, one of the biggest barriers to effective competition is the lack of liquidity on the forwards market. In order to compete, firms must be able to buy energy a week ahead, a month ahead, a year ahead or even further ahead than that, to ensure they are not over-exposed to sudden changes in the price of energy. Many smaller suppliers struggle to access longer-term contracts. The big vertically integrated companies are in a better position because they can effectively hedge their supply against their own generation. By introducing a pool we would effectively ban self-supply, whereby energy companies can generate energy and sell it to themselves, so if any company wanted a longer-term deal, they would have to secure it through the open market.
Professor Dieter Helm gave evidence to the Committee in support of a pool, saying:
“I have always thought that the original pool, at privatisation, was an extremely transparent, liquid and open market, which encouraged entry because anyone could buy or sell at the pool prices…So yes, I think going back to the pool would be a great thing to do.”––[Official Report, Energy Public Bill Committee, 15 January 2013; c. 69, Q212.]
Does the Minister agree that there is no better way to improve liquidity than to insist that everything is sold in an open marketplace? If not, will he set out an alternative for us, or confirm that clause 34 would give the Secretary of State the power to introduce a pool along the lines I have set out?
The Bill offers the opportunity radically to reform our energy market so that it is fairer, more transparent and more competitive. So far, the Government have failed to seize that opportunity, but perhaps clause 34 offers them the chance to do so. I look forward to the Minister’s setting out in his remarks whether the Government are willing to do so. If they are not, will he share with the Committee exactly how he expects the back-stop power in clause 34(3) to be implemented, and how it might encourage market participation and improve liquidity?

Barry Gardiner: I am delighted to follow my hon. Friend the Member for Liverpool, Wavertree, who raised several significant points. The Minister must respond on vertical integration in electricity companies, which has been so deleterious to new entrants to the market, and on the importance of freeing up the market to much better scrutiny and competition, which a pool structure such as my hon. Friend outlined would provide.
My hon. Friend made important points about how customers’ bills on the continent are inflated by the element of duty that is placed on them, and about how important it is to have a clear sight of the base energy costs in the bills that customers face. It has always been an absolute mystery to me how supply companies, which are also nuclear companies on their generating side, can justify higher prices when the market goes up by saying, “Oh, well, it is the price of gas that has inflated the market,” when they were not based on that. The very fact of their vertical integration means that most of their generation capacity is being passed on to them on the supply side. There are real problems here, and the Minister needs to acknowledge that fact and show how the Bill will cope with those problems.
I have other concerns about clause 34. I initially accused the Minister of being like Henry VIII, and the clause contains real powers that one would assume the regulator would have. We need to know why the Secretary of State is appropriating those powers. This is a centralising, not a decentralising, Bill. In many ways, it reflects the nature of the Government; they talk about localism and decentralisation, but accumulate more power at the centre. We have seen that in education and local government policy, and we are seeing it in energy policy as well. The Minister needs to respond very clearly as to why he feels these powers are necessary, and why the alternative that my hon. Friend put forward is not one that he considers viable.

John Hayes: The power in this clause is not a Henry VIII power, just to deal with that at the outset. The cause advanced by the hon. Lady and the hon. Gentlemen is one which finds much favour with the Government. This Government take liquidity in the energy marketplace extremely seriously. As the hon. Lady said, liquidity is an important feature of the competitive market for three reasons: first, risk management; secondly, routes to market; and thirdly, reference prices. I shall deal with those in turn. The first means that generators and suppliers can sell and buy power ahead of delivery hedged against price, volume and imbalance risks. The second provides a liquid wholesale market, independent generators and independent aggregators with a root market for their power. Without these, generators rely primarily on power purchase agreements, as the Committee knows, and it is very difficult for independent generators and aggregators to manage their risks and offer PPAs.
Thirdly, transparent and robust prices along the trading curve that reflect demand and supply fundamental provide participants and potential entrants with investment and operation signals which allow them to make assessments about their engagement and investment plans. A liquid market is highly desirable, and the net effect of a liquid market is likely to create greater competition, as the hon. Lady said, which is in turn likely to create downward pressure on prices. That is why the architects of privatisation believed that a plural market would emerge that would not only create the means by which innovation could play, but exactly that downward pressure on prices.
The hon. Lady is also right that the market is insufficiently liquid at present. If one compares the wholesale market liquidity of the UK market with most other energy markets in Europe—not just in energy but also in other commodities—GB liquidity is lower. That is particularly true in forward markets, and I will come to the significance of that in a moment. If she is right about that, the issue becomes “What should we do about it?” and this part of the Bill creates the opportunity to take more radical action to deal with this pressing problem. I am proud of the fact that the Government take the view that this is urgent and are prepared to put in the Bill powers to take action beyond the measures we have already encouraged through the work Ofgem is doing in studying these matters.
Forward market liquidity is a key concern as it removes hedging and risk management opportunities for independent participants, as the hon. Lady implied. Liquidity in the prompt market, with day and day ahead is less of a concern as volumes are relatively small and participants say that the market generally meets their needs. It is probably also fair to point out that that day ahead short term liquidity has actually increased rather than decreased over the last 18 months or so. Therefore, it is the forward market liquidity challenge that we face, and it is to that end that, as the Committee knows, Ofgem ran a consultation in December. At that juncture it acknowledged, probably in clearer terms than any time previously, that
“Given the importance of meeting our objectives, we now have a firm preference for intervention to improve liquidity.”
It went on to say:
“We therefore intend to make a decision on whether to proceed with an intervention—and the shape of any intervention—ahead of summer 2013. If we decide to proceed with intervention, we would aim to modify licence conditions by the end of 2013.”
That is a much more proactive and positive tone than we have previously seen in consultations by Ofgem on this subject. It increases confidence that Ofgem is determined to deliver some kind of intervention to aid liquidity. The proposals that emerged from that early consultation were certainly rather firmer and more decisive than anything that had previously emerged. It is clear that Ofgem is treating the matter with the seriousness that the hon. Lady recommends. I have more to say specifically on Ofgem but, before I do so, I would be delighted to hear from the hon. Gentleman.

Barry Gardiner: I recently spoke with Ofgem on that point. While it has taken measures to increase liquidity, it should be judged not on its output but its outcomes. The outcomes are not good. It has not managed to increase competition substantially in the market. The competition it has managed to increase has not substantially reduced customers’ prices. That is the objective, but I am afraid the medicine so far from Ofgem is not working.

John Hayes: I had anticipated that intervention, which is why I said I was about to say more. The hon. Gentleman prompts me. I am grateful for this provocative debate, as the hon. Lady described it, because I share the enthusiasm of those who want a more plural and liquid market, for the reasons I have set out. Following the publication in December of some initial thoughts, Ofgem consulted in February on a proposed mandatory auction of power in the market. The proposal in essence was that the six large vertically integrated companies would auction 25% of their generation capacity, and among the auction would be a range of base-load and peak-load products in the forward market.
There was considerable pushback on those proposals, not least from the organisations they were designed to benefit. To that end, Ofgem reconsidered its position and is consulting on a package of licence conditions to secure and promote recent industry-led developments. The latest consultation is due to close on 13 February. The essence of that consultation comprises three measures. First, there are the minimum day-ahead auction volumes. In other words, obligated parties would have to trade at least 30% of their generation capacity through day-ahead auction platforms. Secondly, there are fair and reasonable trading terms. Obligated parties would have to offer fair and reasonable terms when negotiating trading agreements with independent suppliers, for example, credit and collateral requirements. Thirdly, there are trading obligations, which are the mandatory market maker. Obligated parties would have to market-make along the forward curve, while offering bids and offers in a range of forward projects.
I do not want to anticipate the outcome of the conversation. If ever evidence were required of fresh and innovative thinking about liquidity, we have it in Ofgem’s determination to consult on a range of new and powerful measures that would change the landscape in terms of the relationship between the big six vertically integrated companies and others in the market, and so assist liquidity. The powers that we seek in the Bill are above and beyond the actions that Ofgem is taking, with our strong encouragement. I think that the clause stands up on that basis.
Let me say a word about the pool. I do not need to remind the Committee, although I feel obliged to do so, of the condemnation of the pool by the National Audit Office in 2003. Members will have it to hand but for their edification and assistance I will quote from that report. It said:
“the centralised arrangements of the pool carried with them a risk that some generators could manipulate the market and Ofgem consider that this risk materialised through much of the period of the Pool’s operation to the detriment of consumer interests.”
You know, Mr Hood, that the consumer interest drives all the Government do. We could not possibly take any such risk. In addition, the key issue for independent generators and suppliers is managing their risks. They need to sell or buy forward power to hedge against price and volume risk. The pool does not address forward market liquidity and could even have a detrimental effect on that risk management profile. So reverting to the pool would create significant disruption at a time when we are trying to encourage new investment into the UK. I will take a brief intervention and then I will wrap up because I think the case is made.

Alan Whitehead: Is the Minister willing to set out the nature of the pool that the NAO commented on in its 2003 report and what its working consisted of?

John Hayes: It is true that the market structure has changed. I accept that. That is the point that the hon. Lady made but the difference in respect of the forward market is far less significant. The fundamental problems with a pool in respect of the forward market remain. It is also out of line with the assumptions of most other countries. I know that Ireland has a pool system, but I am not sure I know of any other major economy that does. I might be wrong about that. I just think there are better ways to promote transparency and competition along the lines Ofgem is considering. For me to have a lengthy debate on what we are not going to do is undesirable, unnecessary and unwarranted. I commend the clause to the Committee.

Question put and agreed to.

Clause 34 accordingly ordered to stand part of the Bill.

Ordered, That further consideration be now adjourned.— (Joseph Johnson.)

Adjourned till Thursday 31 January at half- past Eleven o’clock.